Income Taxes

The following table summarizes income before income taxes and equity income (in millions):



	Years Ended December 31,
	2015		2014		2013
U.S. income	$	362	$	481	$	637
Non-U.S. income	359		334		246
Income before income taxes and equity income	$	721	$	815	$	883

Income Tax Expense

The following table summarizes income tax expense (in millions):



	Years Ended December 31,
	2015			2014			2013
Current income tax expense
U.S. federal	$	13		$	284		$	67
U.S. state and local	(5		)	14			5
Non-U.S.	51			63			66
Total current	59			361			138
Deferred income tax expense
U.S. federal	95			(87		)	176
U.S. state and local	6			(5		)	7
Non-U.S.	31			9			(4		)
Total deferred	132			(83		)	179
Total income tax provision	$	191		$	278		$	317

Provisions are made for estimated U.S. and non-U.S. income taxes, less available tax credits and deductions, which may be incurred on the remittance of our basis differences in investments in foreign subsidiaries not deemed to be indefinitely reinvested. Taxes have not been provided on basis differences in investments as a result of earnings in foreign subsidiaries which are deemed indefinitely reinvested of $21 million and $26 million at December 31, 2015 and 2014. Quantification of the deferred tax liability, if any, associated with indefinitely reinvested basis differences is not practicable.

The following table summarizes a reconciliation of income tax expense (benefit) compared with the amounts at the U.S. federal statutory income tax rate:



	Years Ended December 31,
	2015		2014		2013
U.S. statutory tax rate	35.0	%	35.0	%	35.0	%
Non-U.S. income taxed at other than 35%	(3.2	)	(2.2	)	(1.7	)
State and local income taxes	0.9		1.2		1.1
U.S. tax on non-U.S. earnings	(3.2	)	7.2		(1.7	)
Valuation allowance	7.1		(4.9	)	3.4
Tax credits and incentives	(6.6	)	(0.8	)	—
Other	(3.5	)	(1.5	)	(0.2	)
Effective tax rate	26.5	%	34.0	%	35.9	%

Deferred Income Tax Assets and Liabilities

Deferred income tax assets and liabilities at December 31, 2015 and 2014 reflect the effect of temporary differences between amounts of assets, liabilities and equity for financial reporting purposes and the basis of such assets, liabilities and equity as measured by tax laws, as well as tax loss and tax credit carryforwards.

The following table summarizes the components of temporary differences and carryforwards that give rise to deferred tax assets and liabilities (in millions):



	December 31, 2015			December 31, 2014
Deferred tax assets:
Net operating loss carryforward - U.S.^(a)	$	409		$	6
Net operating loss carryforward - Non-U.S.^(b)	189			199
Market value difference of loan portfolio	166			349
Accruals	107			157
Tax Credits^(c)	131			2
Other	113			147
Total deferred tax assets before valuation allowance	1,115			860
Less: valuation allowance	(104		)	(57		)
Total deferred tax assets	1,011			803
Deferred tax liabilities:
Depreciable assets	645			300
Intangible assets	34			35
Accrued commissions	27			41
Deferred acquisition costs/revenue	116			50
Tax on unremitted earnings of non-U.S. entities	47			—
Other	40			56
Total deferred tax liabilities	909			482
Net deferred tax asset	$	102		$	321

_________________


(a)	Includes tax-effected operating losses of $409 million expiring through 2036 at December 31, 2015.


(b)	Includes tax-effected operating losses of $84 million expiring through 2032 and $105 million that may be carried forward indefinitely at December 31, 2015.


(c)	Includes tax credits of $131 million expiring through 2036 at December 31, 2015.

We are included in GM’s consolidated U.S. federal income tax return and certain states’ income tax returns. Net operating losses and certain tax credits generated by us have been utilized by GM; however, income tax expense and deferred tax balances are presented in these financial statements as if we filed our own tax returns in each jurisdiction. As of December 31, 2015, we have $50 million in valuation allowances against deferred tax assets in non-U.S. jurisdictions and $54 million in valuation allowances against deferred tax assets in U.S. jurisdictions. The increase in our valuation allowance is primarily related to a change in our assessment of the realization of certain U.S. tax credits.

Uncertain Tax Positions

The following table summarizes activity of unrecognized tax benefits (in millions):



	Years Ended December 31,
	2015			2014			2013
Beginning balance	$	95		$	130		$	53
International operations acquired amounts	—			—			71
Additions to prior years' tax positions	—			1			—
Reductions to prior years' tax positions	(7		)	(12		)	(1		)
Additions to current year tax positions	1			7			12
Reductions in tax positions due to lapse of statutory limitations	(16		)	(6		)	(3		)
Settlements	(2		)	(20		)	(1		)
Foreign currency translation	(10		)	(5		)	(1		)
Ending balance	$	61		$	95		$	130

At December 31, 2015, 2014 and 2013, there were $35 million, $71 million and $104 million of net unrecognized tax benefits that, if recognized, would favorably affect the effective tax rate.

We recognize accrued interest and penalties associated with uncertain tax positions as a component of the income tax provision. Accrued interest and penalties are included within the related tax liability line on the consolidated balance sheets.

During 2014 and 2013, we recorded income tax related interest expense (benefit) and penalties of $(12) million and $(7) million. The amount recorded in 2015 was insignificant. At December 31, 2015 and 2014 we had liabilities of $75 million and $125 million for income tax-related interest and penalties.

At December 31, 2015, we believe that it is reasonably possible that the balance of the gross unrecognized tax benefits could decrease by as much as $20 million in the next twelve months due to settlements or the expiration of statutes of limitations.

Periodically we make deposits to taxing jurisdictions which reduce our unrecognized tax benefit balance, but are not reflected in the reconciliation above. The amount of deposits that reduce our unrecognized tax benefit liability in the consolidated balance sheets was $12 million at December 31, 2015 and $22 million at December 31, 2014.

Other Matters

Since October 1, 2010, we have been included in GM's consolidated U.S. federal income tax returns. For taxable income we recognize in any period beginning on or after October 1, 2010, we are obligated to pay GM for our share of the consolidated U.S. federal and certain state tax liabilities. Amounts owed to GM for income taxes are accrued and recorded as a related party payable. Under our tax sharing arrangement with GM, payments related to our U.S. operations for the tax years 2010 through 2014 were deferred for four years from their original due date. During 2014, accrued tax payments of $296 million related to the 2010 and 2011 tax years were converted to and treated as capital contributions. At December 31, 2014, we had related party taxes payable to GM in the amount of $636 million. During 2015, the outstanding balance was converted to and treated as a capital contribution.

Income tax returns are filed in multiple jurisdictions and are subject to examination by taxing authorities throughout the world. We have open tax years from 2008 to 2015 with various tax jurisdictions. These open years contain matters that could be subject to differing interpretations of applicable tax laws and regulations as they relate to the amount, character, timing or inclusion of revenue and/or recognition of expenses, or the sustainability of income tax credits. Certain of our state and foreign tax returns are currently under examination in various jurisdictions.